How to profit from your bank

Banks are moving back into the black, with both Barclays and HSBC posting multi-billion pound profits this week.

In part, this return to profitability has been driven by many banks offering far less competitive deals to their customers.

Not all banks are sitting so pretty: Northern Rock and Lloyds for example are still squarely in the red. But here, too, there are fears that banks are trying to repair their balance sheets by squeezing more profit from consumers.

Borrowing rates across all banks have remained stubbornly high and most people trying to secure a mortgage, personal loan or credit card will find rates higher than a year ago, particularly if they have a less than perfect credit score.

In particular, banks stand accused of exploiting home owners looking for the security of a fixed-rate mortgage. According to Moneyfacts, the financial data provider, the profit margins on these deals now stand at a 20-year high.

It is a similar picture with credit cards. Today the average APR rate is 18.1pc – up from 17.4pc a year ago – despite the fact that interest rates have fallen from 5pc to 0.5pc over this period.

Banks are not only getting more parsimonious about what they are prepared to lend, they are also paying far stingier rates of interest on money deposited with them.

Current accounts are a prime example. Today the vast majority of current accounts (83pc) pay less than 0.1pc interest on credit balances – again according to Moneyfacts. A year ago only about half (57pc) paid such a low amount. Worse still, nearly half of accounts today (49pc) pay no interest at all on money held in a current account. This is a sharp increase from a year ago, when only 19pc of current accounts did not pay interest.

Over this period the average overdraft rates have reduced marginally. But this masks the fact that a number of better-paying accounts, including the one offered by Nationwide BS, have recently had their rates raised.

Savings accounts are also paying less. A year ago the average easy access rate was 3.73pc; today it is a meagre 0.75pc; although this is mainly due to the dramatic fall in interest rates, rather than profiteering from banks.

With the gaps between savings rates and borrowing rates widening, it is not very hard to see how banks are making money.

But savvy customers can beat the banks at their own game. Kevin Mountford of Moneysupermarket.com says: "Consumers can help themselves by ensuring they shop around for the best deals."

As he points out, while many of the products advertised by the big banks offer pretty lacklustre rates, most banks still have one or two "best buys" designed to lure new customers through the door. Often these are "loss leaders", offering short-term introductory rates on which the banks make no money.

Banks make their money from existing customers who have little enthusiasm for moving their money elsewhere.

If you want to profit from the banks, rather than let them profit from you, you need to take advantage of such offers. And once you have secured the right deal, don't be shy about switching again. Loyalty rarely pays in financial services.

Follow our guide to get the current best banking deals on the high street.